Product Management Case Study: Pay Phones

by drjim on March 19, 2012

Hey product manager, can you pay to hear me now?

Hey product manager, can you pay to hear me now?

I don’t care what kind of product you are in charge of right now, let’s play a game. You are now in charge of a product that all of us see every day: pay phones. What would you do to breathe new life into this dying product line?

Everything You Need To Know About Pay Phones

Ah, the year 2000. Now that was the year to be a pay phone product manager! Back in 2000 is when pay phones hit their peak. 2.2 million of the ubiquitous communications devices were deployed back in the day. However, pay phones have fallen on hard times since then. These days, there are only about 425,000 of them left nationwide in the U.S.

So what happed to this product? How come what was once a popular, in demand item, has now fallen on hard time? Two words: cell phones. It turns out that in the U.S. there are now more cell phones than there are people (clearly a number of us have more than one of the things).

The companies that used to operate vast legions of payphones, Verizon, AT&T, and Sprint have all gotten out of the game by selling off their pay phones. Where this story starts to get interesting is that there are a number of firms, like Pacific Telemanagment Services, that are buying up these assets. Clearly they must see a market where the big boys don’t.

Creative Ideas

So if you found yourself as the product manager for pay phones, what would you do? Clearly the old role that pay phones used to fill – providing people with the ability to make calls while they were away from home, is no longer the primary way that they’ll make money in the future. No product manager job description will tell you how to handle this situation!

This is going to require some creativity on your part. I believe that what some of the new pay phone owners are doing is on the right track. They are viewing pay phones as being less about being a phone, and instead more about being an important piece of real estate. Remember that in the world of real estate, it’s all about location, location, location.

What this would mean to you as a payphone product manager, is that payphones could still be used as phones. In fact, if you could figure out where there are areas that cell phone signals are not strong or where natural disasters tend to hit, then those pay phones can still earn their money the traditional way: by completing calls.

What’s interesting about the payphone business is that it is actually very easy to measure the value of each payphone. The industry rule-of-thumb is that each payphone has to complete between 100-150 calls per month to profitable.

In order to drive up usage of your payphones (and hit the 100 calls per month mark), you might have to change what a payphone looks like. This might include adding fancy touchscreens and turning them into temporary Internet access locations.

Once again, it’s the location of the payphone that might bring the greatest value. This means that a clever product manager might find different ways to include advertising. Either on the payphone device itself or on a screen associated with it, advertising could be done a number of different ways.

What All Of This Means For You

So where does all of this leave you? In the scenario that we were discussing where you found yourself as the product manager for pay phones, you’d have your work cut out for you. You’ve got a product development definition that needs to be created.

The steep decline in the number of payphones that are out there has been caused by the arrival of cell phones. However, an enterprising product manager would realize that the real value in pay phones going forward will be tied to their location.

This means that you would be looking for ways to make every one of your pay phones generate 100+ calls per month. This is where the real product manager creativity would have to come into play. Transforming a traditional pay phone into an Internet access point or an advertising hub are two different possibilities.

The key here is that just because a product has passed its heyday, does not mean that there is nothing for a product manager to do. Instead, you need to take a look at the product cards that you have been dealt and then use your product management skills and training in order to determine how you can maximize what your product can bring to the table. Do this well and you’ll have another accomplishment to add to your product manager resume!

- Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: What signs do you think will tell payphone companies that it is time to leave the market for good?

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What We’ll Be Talking About Next Time

How do you feel about failing at something? I’m willing to bet that you are just like the rest of us in that you HATE to fail. It turns out that if indeed this is the way that you feel, then perhaps you’ve been missing out on some great learning opportunities. Maybe I should explain myself…

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{ 9 comments… read them below or add one }

Loukik Kudarimoti March 19, 2012 at 2:49 pm

Good post and definitely a challenging one to manage!

Internet is a must-have but won’t guarantee users, for a variety of reasons.

The key perhaps is to draw people to it, which will bring ad revenue as a consequence. I would aim at those who do not need to use it for phone or internet but instead for things such as local maps, public transport information, a list of local services available such as restaurants, bars, hotels, banks, etc.

And once we have succeeded in pulling people to it, we can use it to sell more things.

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Susan March 22, 2012 at 6:40 am

Interesting question. Pay phones have definitely had a good run and it’s time for them to adapt to what people need today. My initial thought was to turn them into Internet access points. Definitely useful to many people these days, probably better for those who don’t have data plans or smartphones and need to access the Internet to get information quickly.

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Dr. Jim Anderson March 30, 2012 at 8:38 am

Susan: I think that you have a great idea there for turning pay phones into wireless access points. Now if they could just figure out how we could put the coins in to get a few more minutes of Internet access…!

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Arlene April 12, 2012 at 9:59 am

Very thought provoking. It’s not about one on one communication anymore, but more so for information.
I’m thinking that it becomes a digital information booth of sorts with local area advertising and Siri type technology. Revenue would be based on advertising and the number of visits/hits that it gets (who carries a pocket full of change anymore).

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Dr. Jim Anderson April 12, 2012 at 9:46 pm

Arlene: I think that you are on the right path. The value in a payphone going forward is probably its location — not the fact that you can make a call on it!

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Darion April 27, 2012 at 11:15 am

I don’t really see how internet access is that much of a value-add, since more and more people are switching to smart phones with that functionality. However I could see the value of having Google Maps available on a payphone.

But what if you made the phone call free, and required listeners to hear an advertisement before they could place their phone call. You would have to limit the phone calls to a certain amount of minutes, lest you should interrupt a 20 min call with another round of ads.

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Dr. Jim Anderson May 3, 2012 at 11:00 am

Darion: Great idea about the “forced ads”. Now the big question would be what companies would be willing to pay for those ads — would it have to be local companies?

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Michael Carpenter May 13, 2013 at 11:47 am

I think the picture caption might be on to a value prop- “Hey product manager, can you pay to hear me now?”

The “can you hear me know” slogan reveals a shortcoming of cellular technology- it doesn’t work everywhere, coverage is incomplete. So to use another famous line “location, location, location…”

In other words, putting payphones where cellular coverage is poor would be a key to meeting that minimum duty cycle as this old product comes to its seemingly inevitable end.

I would be surprised if coverage information is not already the key determination for payphone placement. It’s indirectly an indicator how many of few cellphones “live” in the area.

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Dr. Jim Anderson June 7, 2013 at 1:50 pm

Michael: I think that you might be on to something there. Sometimes it’s the fact that you have a payphone with power provided to it in a given area that just might be more valuable than the ability to make a phone call…

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